Monday, June 12, 2017

Lower markets as Nasdaq extends losses

Dow was off 54 (but advancers over decliners 5-4) & NAZ plunged 80 (more below).  The MLP index climbed 2+ to 298 & the REIT index was fractionally higher to 351.  Junk bond funds slid lower & Treasuries were slightly weaker.  Oil rose (more below) & gold pulled back.

AMJ (Alerian MLP Index tracking fund)


Crude Oil46.49



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US tech shares resumed losses after Fri's rout spread to Asia & Europe on concern the group had risen too far too quickly.  The £ retreated as an embattled Theresa May fought to survive the fallout from the British general election.  The NAZ 100 pushed its 2-day loss past 3%, the biggest since the Brexit vote. £ appears to be looking past the potential benefits of a soft Brexit amid ongoing political uncertainty.  Italian bonds rallied as populists took a hit in local elections. The sudden slide in tech stocks, which had helped send global equities to repeated record levels this year, blindsided many investors after markets largely brushed aside last week’s trio of risk events.  The question now is whether the drops represent merely a pause or a more fundamental crack in the US stock bull market.  Meanwhile, in DC the drama continues.  Attorney General Jeff Sessions offered to speak to the Senate Intelligence Committee to answer questions about alleged Russian meddling in the 2016 election.  And the Federal Reserve is this week set to lift rates, leading a pack of central banks that are mostly nodding in the direction of removing ultra-accommodative policy.

Tech Selloff Spreads After Friday’s Slide

Federal Reserve officials surprised some onlookers by unveiling a rough plan for balance sheet runoff in the minutes for their May meeting.  They were so on top of things, in fact, that many economists think more formal guidelines could come as early as this week.  To avoid unsettling financial markets, the Fed wants to clearly communicate its unwind strategy well in advance & the next step in that process is releasing a fresh version of its "Policy Normalization Principles "  Minutes of the May meeting both foreshadowed an update to the principles & provided details on how the unwinding might proceed by describing a staff plan to slow the reinvestment of maturing securities via gradually rising caps.  Officials will continue their discussion about how and when to start shrinking their $4.5T balance sheet during a meeting on Tues & Wed at which they are also widely expected to raise rates.  If the central bank releases up-to-date guidelines this week, it's unlikely to include much color beyond what the minutes have already laid out.  Even so, such a step could serve as a signal that the Fed's planning process is making progress, suggesting the central bank could be ready to release details on caps & unwind timing before much longer.

The Fed Is Getting New Rules of the Road Ready for Balance Sheet Unwind

Oil rose to break a 3-day losing streak, after futures traders increased their bets on a renewed price upswing even though physical markets remain bloated, especially from a relentless rise in US drilling.  US West Texas Intermediate (WTI) crude futures gained 17¢ to $46.00 per barrel.  Traders said the price rises came as data showed speculative traders had increased their investment in crude futures by taking on large volumes of long positions.  Oil futures have lost around 10% in value since May 25, when OPEC & 11 of its partners extended a restriction on supply into Q1-2018.  US drillers added 8 oil rigs last week, bringing the total count to 741, the most since Apr 2015.  This drive to find new oil has pushed up US output by more than 10% since mid-2016, to 9.3M barrels per day (bpd).  The Energy Information Administration says that figure will likely rise above 10M bpd by next year, challenging top exporter Saudi Arabia.  Soaring US output undermines OPEC-led efforts to cut almost 1.8M bpd of production until Q1-2018 in order to prop up prices.  Saudi Arabia will supply full contracted volumes of crude to at least 5 Asian buyers in Jul, industry sources said.  The oil price hit one-month lows last week, as evidence of rising output beyond the US, in the likes of Libya and Nigeria, added to investor bearishness over supply.

Investor confidence pushes up oil prices

The story today in the stock market is that it is mixed even though tech shares are seeing a lot of selling.  Trump is moving forward on helping business by reducing regulations & pushing infrastructure spending while the rest of DC is mired down in meaningless testimony which will accomplish nothing.  One significant danger for stocks is the selling in tech shares could bleed over to ordinary stocks in this overbought stock market.

Dow Jones Industrials


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